Foreign Exchange Market

I) Exchange Rates

The monthly average mid exchange rate in the inter-bank foreign exchange market appreciated slightly by3.0 per cent from Shs 1147 per US dollar in November to Shs 1143 per USdollar in December 1997. This compares with the depreciation of 0.6 percent during the previous month. After five months of general shortages,condition improved in December 1997 with more surplus funds in the mark.Bank of Uganda intervened on the buy side to the tune of US$ 15.85 million,mainly to slow down the appreciation process.

ii) Foreign Exchange Purchases and Sales

The volume of transactionsin the inter-bank foreign exchange market (IFEM) increased during the periodunder review. Gross foreign exchange purchases amounted to US$ 155.83 millionin December, 1997 compared to US$98.17 million for November, while grossforeign exchange sales in the IFEM rose to US$ 138.45 million comparedto US$ 100.80 million registered in November.

Monetary Aggregates

I) Base Money

Base money increased by Shs24.5 billion from the end-November, 1997 level of Shs 372 billion to Shs351.5 billion as at end -December, 1997. The increased in base money waspartly due to the increased in commercial banks’ reserves at BOU by Shs2.09 billion from the end-November, 1997 level of Shs. 79.75 billion, andlargely due to rise in currency issued of Shs 22.41 billion to Shs 269.66billion by end-December, 1997. The substantial rise in currently issued is explained by the high demand over the Christmas seasons. However, the base money remained below levels throughout
the month.

II) Money Supply

Money supply (M2) grew by1.0 per cent to Shs 741.5 billion in November, 1997 from Shs 734.1 billionregistered in October, 1997. The growth rate in money supply has remainedstable over the last two months. The increased in broad money (M2)was largely attributed to the increased in net foreign assets of Shs 54.4billion which was in part offset by the declines in net circulation increasedby Shs 2.6 billion to Shs 222.7 billion as at end-November, 1997 whiletime and savings deposits increased by Shs. 5.2 billion to Shs 265.8 billion.Demand deposits however, decline slightly by Shs.
0.5 billion to Shs 253.0billion as at end -November.


The Annual Headline Inflationrate of the year ended December, 1997 was 10.0 per cent up from 8.9 percent recorded in November 1997. Similarly, the annual underlying (excludingfood items) inflation rate rose slightly from negative 1.2 per cent inNovember, 1997 to negative 1.1 per cent for the year ended December, 1997. The monthly headline inflation rate however, fell from 2.2 per cent inNovember to 0.7 per cent in December, 1997. The rise in the annual headline inflation rate in December is attributed to increases in the prices offood items, beverages and tobacco, clothings & footwear, rent, fueland transport charges. The annual underlying inflation rate has
consistently maintaineda lower change since December 1996.

Interest Rates

During the month of December,1997 total issues of treasury bills amounted to Shs. 35.29 billion where as maturities amounted to Shs 26.69 billion. Decreases were observed in theinterest rates on the 91-day, 273-day and 364-day treasury bills respectively,from 10.18, 12.52 and 12.97 per cent as at end-November 1997 to 9.80, 12.37and 12.69 per cent respectively, as at end-December 1997 while the rateon the 182-day treasury bills increased slightly from 11.36 per cent to11.37 per cent during the same period.

In line with developments in the shilling inter-bank money market, the Rediscount Rate and the Bank Rate declined from 12.26 per cent and 15.74 per cent as at end-Novemberto 12.24 per cent and 14.08per cent as at end-December 1997 respectively.

Commodity Sub-sector


The provisional coffee export figure for December, 1997 from UCDA show an increase in volumes of exports compared to the previous month. The export volume increased by 34.3 per cent from179,604 (60-Kg) bags valuedat US$ 16.07 million in November, 1997 to 241,147 bags, valued atUS$ 21.61 million in December,1997. The realised export unit price in December however,remained at the November levelof US$ 1.49 per kg. The export volume for December, 1997 is still low compared to 514,390 bags exported in December, 1996. The low export volume has been attributed to the wet weather condition which has adversely affected the drying of coffee.

For the first two quarters of 1997/98, the export volume tottaled 1,361 million bags compared to 2,271 bags (a decline of 40.1%) during a similar period in 1996/97. The export values during the same period declined by 31.5% to US$121.7 million from US$177.6 million in the first two quarters of 1996/97.

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